C E C A : WAT E R S E R V I C E S O P E R AT O R S GROUP POLICY DOCUMENT D E L I V E R I N G VA L U E T O T H E WAT E R S E R V I C E S S E C T O R
The Water Services Operators Group is a subcommittee of the Civil Engineering and Contractors Association and a constituent body of the Construction Industry Federation.
M A S T E R B U I L D E R S ’ A N D C O N T R A C T O R S ’ A S S O C I AT I O N P O L I C Y D O C U M E N T D E PA R T M E N T O F E D U C AT I O N C A P I TA L
CONTENTS Statements and acknowledgements
page 3
Section 1
The CECA: Water Services Operators Group
page 4
Section 2
Introduction
page 5
Section 3
Communication and partnership
page 5
Section 4
Overview of the DBO model
page 6
Section 5
International context
page 6
Section 6
Advantages of the DBO Contract Model
page 7
Section 7
Disadvantages to shortening the operational period
page 9
Section 8
Transition period
page 10
Section 9
Improvements to the DBO model
page 10
YEAR: 2023
C E C A : WAT E R S E R V I C E S O P E R AT O R S G R O U P P O L I C Y D O C U M E N T D E L I V E R I N G VA L U E T O T H E WAT E R S E R V I C E S S E C T O R
Statements and acknowledgements Statement by Patrick Buckley, President of the Water Services Operators Group
The private operation and maintenance of Ireland’s wastewater and
This document outlines the foundations upon which this partnership
water treatment infrastructure have been strategically important
can be constructed and we look forward to working collaboratively
elements of Irish Water’s objectives over many years.
with Irish Water as it transitions to
These services are provided by the professional and innovative
the delivery of its Strategy 2023-
members of the Water Services Operators Group (WSOG), who
2O30.
offer unique technical expertise that is vital to the quality and safety of Ireland’s drinking water and environment. Our members are solution providers and believe that by working in partnership with Irish Water, we can together construct and operate the world-class
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infrastructure critical to our communities, environment and
Patrick Buckley, President
economic future.
Water Services Operators Group
Members of the Water Services Operators Group
WSOG companies represented
Patrick Buckley, President, EPS Barry O’Toole, EPS Declan Maguire, CAW Conor Rush, CAW Eoin Colgan, Coffey Water Odran Madden, Coffey Water Andrew Young, Glan Agua Karl Zimmerer, Glan Agua John Murphy, Murphy Group Ireland Val Fox, SISK Alan Tully, SISK Robbie Nichol, Veolia Declan White, Veolia Noel O’Keeffe, Ward and Burke
CIF Staff Paul Sheridan, CIF Director, Main Contracting Services Alison Irving, CIF Executive, Main Contracting Services and General Secretary to CECA Esther Butler, CIF Administrator, Main Contracting Services
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Section 1: The CECA: Water Services Operators Group The Water Services Operators Group (WSOG) represents Civil
n
Engineering Contractors Association (CECA) and Construction
including indirect employees within their organisations. In
Industry Federation (CIF) general contracting members
addition to these employment figures, they further support over 500 employees in the supply chain.
specialising in the operation of water treatment plants (WTPs) and wastewater treatment plants (WWTPs). Typically, members undertake all elements involved in the operation and maintenance of Ireland’s water, drainage, and wastewater infrastructural network.
There are currently over 40 apprentices being trained and in 2022 WSOG members hired over 60 graduates. They are very focused on their employee well-being and quality. For example, over 85% of members are implementing active health and well-being
Some of them also participate in the design, build and
programmes in their companies, while the remaining are currently
commissioning of the plants that they operate. The WSOG
developing their policies.
plays an active role in promoting the highest standards within
In relation to quality standards, members are currently operating
the industry and supporting the welfare and interests of each
to all industry standards, including:
individual member.
n
ISO 9001 Quality Management System;
The following statistics highlight the extent and importance of
n
ISO 45001 Occupational Health & Safety Management System;
member activities in the design, construction and operation of
n
ISO 14001 Environmental Management System;
n
CEMARS Carbon Measurement and Reduction;
n
ISO 50001 Energy Management System; and,
n
ISO 27001 Information Security Management System.
water and wastewater treatment assets to Irish Water and Irish society. WSOG members operate over: n
150 WWTPs or approximately 10% of all plants in Ireland – this includes many of the largest and most critical plants in the country, representing greater than three million PE;
n
4
employ over 600 direct employees and up to 750 when
200 WTPs or approximately 25% of all plants in Ireland –
The members are also committed to corporate social responsibility in their communities and have supported over 100 community projects in 2022 alone, with a combined value of
again, many of these include the largest and most critical
greater than €120,000. All of this aligns closely with the 24
plants in the country, representing greater than 70,000 MLD
objectives listed under “Sustainability and Innovation” in Irish
of potable drinking water; and,
Water’s 2023-2030 Strategy.
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There are currently over 40 apprentices being trained and in 2022 WSOG members hired over 60 graduates.
Section 2: Introduction This document outlines the views of the CECA WSOG on the
build and operate (DBO) model. The document also outlines
important benefits and value of continuing to deliver water and
recommendations on how the DBO model could be further improved
wastewater infrastructure and operational services under the design,
to deliver more value to Irish Water and the Irish State.
Section 3: Communication and partnership The CECA WSOG would welcome the opportunity to engage with all
that a partnership approach is taken in the delivery of Ireland’s
relevant stakeholders, in particular Irish Water, to discuss how it can
infrastructure and that Irish Water continues to be a commercially
support their important work and responsibility of water and wastewater
attractive partner. Unfortunately, moving away from the 20-year DBO
services in Ireland.
model is likely to significantly undermine this.
The CECA WSOG would also like to recognise Irish Water’s accessibility
Therefore, partnership is about a fundamental understanding of all
and responsiveness over the last number of years to requests from the
parties’ interests and the impact that policy decisions may have on the
CECA for meaningful engagement and meetings.
industry and our members. But it is also about project delivery through
Our water and wastewater infrastructure and services will be critical to
collaboration and effective risk management.
delivering on Housing for All and climate action objectives. The members
We strongly believe that it is in both parties’ interests to continue to
of the CECA WSOG recognise that they have a strategic role to play in
communicate effectively and strengthen our relationship through
this, and also understand the importance of working in partnership with
designated points of contact to explore the challenges we face, including
Irish Water and other key stakeholders in Government to deliver value to
Irish Water’s decision to alter its position regarding the procurement of
the State.
DBO-type contracts.
While the members want to be part of constructing and operating
In this light, the CECA WSOG would support the development of a regular
Ireland’s future water and wastewater infrastructure, many of the
forum where Irish Water and our members could discuss the various
members are seeking and finding more attractive commercial
issues and challenges associated with the delivery of water and
opportunities in both domestic and export markets. Therefore, it is critical
wastewater services under the DBO model.
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Section 4: Overview of the DBO model The use of DBO contracts began in the US in the 1990s. Municipal authorities
of an “increased demand from borrowers to develop projects on a design, build
realised that DBO contractors were better placed to manage the risks associated
and operate basis”
with construction and operation of treatment facilities, while the facility could
(http://pubdocs.worldbank.org/en/936071500059812029/GuidanceNotewast
remain in the ownership of the municipality or water authority. In Ireland, DBO
ewatertreatment.docx). Both Guides recommend the use of the DBO model
contracts have been procured for the past 20 years or so for the construction,
when the employer is primarily concerned with having a contractor committed
operation and maintenance of the larger public WWTPs and for some public and
to deliver and operate a fit-for-purpose facility under a long-term performance-
group water scheme drinking WTPs. Twenty-year operation service periods have
based contractual arrangement. Since 2019, Ofwat 9 (See Appendix-9-Direct-
generally been used for DBO contracts and continue to be recommended in the
procurement-FM.pdf (ofwat.gov.uk)), the UK water utility regulator, requires
World Bank and Asia Development Bank guides. As outlined in Section 1, WSOG
water companies in England and Wales to consider a competitively tendered
members operate more than 150 WWTPs, including some of the largest public
DPC contract for projects > St£100m. A DPC contract involves a third party to
plants, and over 200 of the most critical WTPs under the 20-year DBO model.
design, build, operate and maintain, and sometimes finance, infrastructure.
This includes the majority of the top 20 largest plants, including Ringsend in
Overall, the international trend is that design and build (DB) contracts only (no
Dublin and other plants in main Irish cities and towns.
operational element) are becoming less prominent in the water services sector.
Section 5: International context
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For example, in the report entitled ‘5 Trends in Public-Private Partnerships in Water Supply and Sanitation Public Private Partnership’ (worldbank.org), under
DBO contracts are now being widely used worldwide to construct and operate
trend one, it states: "Build-Operate-Transfer (BOT) and Design-Build-Operate
facilities in the water services sector. In addition to conventional wastewater
(DBO), particularly in desalination and wastewater treatment plants, have
and drinking water treatment plants, DBO is now increasingly used for sludge
become a solid business line in many emerging countries (especially in the
management (e.g., gasification, pyrolysis, incineration), water re-use and
Middle East, China, Mexico and Brazil) – with strong competition from a large
desalination facilities. In 2018, the Asian Development Bank published its ‘User’s
and growing number of international players as well as regional players from
Guide to Design-Build-Operate Contracts for Water and Wastewater Greenfield
developing countries. ....... These projects do not usually involve the challenges
Infrastructure Projects’, with an Operation Service Period of around 20 years. In
of the private sector managing an existing public workforce or an interface with
August 2019, the World Bank published a ‘Guidance Note for Design, Build and
household customers, but they bring the benefits of private investment,
Operation (DBO) of Water and Wastewater Treatment Plants’ in its recognition
expertise and technology, and sustainable operations".
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Twenty-year operation service periods have been generally used for DBO contracts and continue to be recommended in the World Bank and Asia Development Bank guides
Section 6: Advantages of the DBO contract model Irish Water’s 2023-2030 Strategy sets out its objectives under the areas of
chemicals and labour are addressed in the most effective way to the benefit
sustainability and innovation. WSOG members believe that the 20-year
of Irish Water. If these are removed from the tender process it will undermine
DBO model is aligned with these objectives and is internationally recognised
the commercial viability of the project, despite the duration, and may force
as offering the following advantages for projects involving the provision of
contractors to seek opportunities elsewhere.
treatment facilities:
6.3 Innovation and technology 6.1 Visible pipeline of work
The DBO model is specifically designed to support the adoption of
The 20-year operate model is an attractive commercial opportunity to the
innovative solutions, including the latest process technology, because it is
WSOG members. This is because it is a highly effective counter-cyclical
based on the concept of whole-life costs. Irish Water benefits from having
mechanism to support cashflow in the water and wastewater industry during
treatment facilities with the most up-to-date technologies and thus delivery
periods where the capital pipeline may not be as certain or visible. It provides
of high-quality effluent.
the certainty for the members to invest in their people, technology and business systems. On the other hand, shorter periods only undermine this
6.4 Access to talent and expertise
certainty and make tendering for one- to three-year operate models
Irish Water will have access to our members’ highly educated and skilled
unattractive for contractors.
employees who operate many of the complex process technologies, such as sequencing batch reactors (SBRs), granular activated sludge (NEREDA),
6.2 Quality in award
anaerobic digestion, combined heat and power (CHP), and thermal drying in
A major factor in the evaluation of DBO tenders is around quality, i.e., the
compliance with health and safety and environmental compliance
whole-life cycle costs and performance of the built and operated treatment
requirements. For example, our members are continuing to provide non-
plant. This provides Irish Water with a greater certainty of the final capital
DBO-related expert technical support services to many local authorities/Irish
cost of the facility, and the operating and maintenance costs during the
Water to help them operate their treatment facilities. Shorter operational
operations period. The competitive tendering process and the incentive for
periods as outlined above will undermine investment in these skills and the
efficiency by the contractor will ensure that factors such as the use of power,
ability to recruit and retain talent.
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6.5 Green procurement and sustainability
6.8 Protection of the taxpayer
As the DBO model is focused on the whole-life cost of the contract it drives
The DBO model ensures that operational risk is appropriately allocated
efficiency and innovation. The DBO contractor, in the preparation of its bid, is
between Irish Water and our members, thus reducing the exposure of the
incentivised to provide systems, processes and technology that will deliver the
Exchequer, and thus the taxpayer, to increased costs.
lowest whole-life cost. In the past, due to the length of the O&M periods, these efficiencies were gained through energy reduction, chemical reduction, sludge reduction, and enhanced automation and operator interfaces, thus reducing labour costs. This key focus on whole-life cost aligns with Irish Water’s Sustainability Strategy for net zero carbon by 2040. Shortening or removing operational periods will serve to disincentivise contractors to innovate sustainable solutions in the upgrade of existing or construction of new facilities.
6.6 Environmental quality and standards Payments under the DBO model are linked to the quality of flow/load/sludge volume, which incentivises the optimisation of key inputs such as skills and talent, maintenance, and efficiencies around the consumption of energy and chemicals. The focus on standards and skills is reflected in the fact that less than 5% of complaints in a typical year are across WWTPs and WTPs in WSOG members’ care.
The model is also designed to accelerate the delivery of treatment facilities in the State due to fewer contractual interfaces and the ability for value engineering to be used in their construction. This means that the infrastructure is built faster, at a higher quality and long-term viability than traditional contractual models.
6.10 Long-term viability A key feature of the DBO contract is the asset replacement fund, which provides funding for the replacement of assets with a greater than fiveyear service life in accordance with the asset. Optimal planned maintenance of plant and equipment is ensured, which reduces reactive maintenance requirements and provides a safeguard that plant and equipment will continue to meet requirements for the duration of their service life.
6.7 Risk associated with future demand, water and influent
6.11 Bulk purchasing power
quality/volume
DBO contractors have significant purchasing power with suppliers of
Under the DBO model, these types of risks are allocated to the contractor,
goods and services, and the DBO contract is designed to optimise energy
which they account for in the competitive tender process. Any move to shorter
consumption, chemical consumption, and sludge management costs. It is
or no operational periods will result in these risks being borne fully by Irish
unlikely that Irish Water would see much, if any, tangible benefit from
Water should any of these risks materialise. These costs cannot be omitted by
reducing the operational period.
Irish Water when carrying out comparative studies.
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6.9 Accelerated construction schedules
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Section 7: Disadvantages to shortening the operational period DBO contracts with shorter operation service periods of between one and
difficult for the members to recruit and retain the calibre of talent necessary to
seven years have been procured in Ireland in recent years. These shorter
safely operate facilities. In addition, the current concept of rolling one-year
contracts have significantly reduced advantages and, indeed, introduced some
extensions further adds to the challenges presented to the WSOG members in
significant disadvantages compared to 20-year contracts.
adequately resourcing and retaining staff on these contracts. It will simply not be possible to train new apprentices and graduates, which will in turn affect
7.1 Commercial attractiveness and viability of members’ businesses
Irish Water’s access to this talent. Moving too rapidly to a shorter operating
At a critical time for the delivery of essential infrastructure for housing and the
supply chain and growing market capacity. WSOG members are looking for
increasing challenge of the commercial environment presented by public
alternative opportunities, because projects tendered on a one-year operation
procurement, our members are calling on Irish Water and the Government to
period are commercially unviable for all the reasons set out above.
period will undermine Irish Water’s 2023-2030 Strategy objectives under
work in partnership with us to ensure that we can deliver on these objectives. WSOG members want to support Irish Water’s 2023-2030 Strategy by working
7.2 Employment rights
in a collaborative way and managing the transition to shorter operating periods
There are, of course, potential implications under the EC (Protection of
over the duration of this strategy. This will align with the strategy under its
Employees on Transfer of Undertakings) Regulations 2003 that must be
supply chain, sustainability and innovation objectives. It will offer more business
considered. The TUPE Regulations protect the rights of employees where an
certainty for members and give them the time to transform their business model
undertaking is transferred from one entity to another.
and to continue to invest in people, processes and innovative technology.
These Regulations need to be considered carefully as to the rights of a DBO
Any changes to the 20-year DBO model without transition and engagement
contractor’s operatives where the DBO contractor is to be replaced at the end
The 20-year operation period provides the necessary certainty to support investment in the recruitment, retention and training of our people and offers them a clear career progression pathway
of the contract either by another contractor or Irish Water. Either way, under the TUPE Regulations, the DBO contractor’s operatives may have the right is to be transferred to the new employer, whether that is another contractor or direct operation of the facility by the employer, with their accrued years of service, their existing terms and conditions of employment, and also with the benefit of any collective agreement to which they may already be subject.
with the industry will likely lead to significant losses for our members who have invested in and planned their businesses on this type of model. These losses
7.3 Quality
could be significant enough to force some members into insolvency or severely
As set out in the World Bank and Asian Development Back guides referred to
damage the long-term health of their balance sheets.
above: “Overly short operation service periods will deprive an employer of the
This will make it more difficult for them to compete for future Irish Water
benefit of this mechanism if the operation service period is shorter than the
projects and other National Development Plan projects, thus forcing them to
lifespan expectancy of the majority of the electrical and mechanical equipment.
seek better commercial opportunities elsewhere.
In such case, the contract may come to an end before it can be fully
The taking in charge by Irish Water of factors like power, chemical and labour
demonstrated whether the assets delivered by the contractor are robust
supply will disincentivise the investment by WSOG members in all types of
enough to withstand the passing of time and operation”.
operative models. It will only exacerbate the problem as members will no
This is because shorter operational periods tend to reduce the focus on the
longer see an attractive commercial opportunity in this work.
quality of the tender during the evaluation and focus more on the price of the
The 20-year operation period provides the necessary certainty to support
capital cost of building the plant. Unless this is managed and structured
investment in the recruitment, retention and training of our people and offers
effectively by the client with a 70:30 weighting in favour of whole-life quality
them a clear career progression pathway. Unfortunately, a one- to three-year
over price, it can materially undermine the concept of life cycle costing and
O&M contract period will not provide the same certainty, and will make it very
sustainability.
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Section 8: Transition period WSOG members believe that many of these disadvantages could be mitigated and managed if Irish Water was to work in collaboration with members over the duration of the 2023-2030 Strategy. As stated above, this will allow the industry to transition to the new model, while offering Irish Water the benefit of the current model and support of its strategic objectives.
Section 9: Improvements to the DBO model During this transition phase, WSOG members believe that the DBO model
9.3 Risk allocation
can be further improved to deliver even better value to Irish Water and the
One of the key factors in determining the effectiveness of a DBO contract
State, and support the 2023-2030 Strategy under supply chain.
in terms of value is how risks are allocated between the employer and the contractor. A sensible, balanced risk sharing between the DBO contractor
9.1 Price variation mechanisms
and the employer results in the lowest whole-life cost for completed
It is critical that fair and effective price variation mechanisms are
projects.
introduced on future operation contracts along with measures to support
Significant risks over which the DBO contractor has no control, or against
those already in contract. The industry has not experienced such material
which they cannot take out insurance, should not be transferred to it by
price inflation and supply chain disruption in over 40 years resulting from
the contract.
Brexit, Covid-19, closure of construction projects and the Ukrainian war.
If such significant risks are transferred, the DBO contractor has no
Geopolitical forces are likely to continue for the foreseeable future, which
alternative but to make financial provision in its tender pricing to protect
may lead to more permanent structural supply chain disruptions and the
its position should that risk materialise over the course of the contract.
associated cost increases for energy, fuel, chemicals, materials and
Both the World Bank and Asian Development Bank guides referenced
equipment.
above highlight the importance of this in obtaining value from a DBO contract.
9.2 NEC form of contract promotes greater collaboration and risk management, and incentivises
9.4 Incentivised performance, compliance and payment
performance. The use of the NEC by experienced practitioners will lead to
The payments deduction mechanism for underperformance incentivises
better outcomes through the optimal configuration of risk and z-clauses
the DBO contractor to meet these requirements and to optimise the
based on the complexity and information available for each project.
process performance to ensure compliance.
The members support the use of the new engineering contract (NEC), which
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Significant risks over which the DBO contractor has no control, or cannot take out insurance against, should not be transferred to it by the contract.
It is important, however, that such payment deductions are proportionate
in Irish Water’s efficiency challenge for RC3 given that Irish Water
and great care should be given to ensure that the key performance
reported savings during the IRC2 period. Also, the CRU now considers
indicators are both reliable and easily verifiable, and applied fairly where
that since a small number of DBOs are due to expire during the RC3
there is a contractor’s non-excusable breach of a performance guarantee.
period, this provides Irish Water with the opportunity to drive further
Disproportionate, unduly harsh, or unfairly applied deductions will have
efficiencies. The efficiency challenge in the RC3 period is for a 2% year-
the opposite effect on the contractor’s performance than that originally
on-year cost reduction in the first two years (2020 and 2021), increasing
intended.
to 4% in 2022, and finally to 6% year on year for the final two years of
By contrast, when a plant is not being operated under a DBO contract, any
the period (2023 and 2024).
additional costs incurred arising out of failing to meet the performance
As, under their contract for WWTPs, the DBO contractor is required to
standards must be met by the employer. This results in higher operating
manage and treat the flows and loads arriving at the treatment plants to
costs for the period of underperformance (rather than lower operating
meet the treated effluent standards, the first area that should be looked at
costs in a DBO contract when payment deductions are applied).
to meet the CRU’s efficiency challenge is better management of the flows
In addition to the operating costs, the employer will also have to bear the
and loads in the network, particularly from stormwater and trade effluent
cost of rectifying the cause of the failure, including any clean-up or
discharges. Better management of stormwater flows, including
equipment servicing or replacement, whereas the DBO contractor is
attenuation during rainfall events, will reduce fluctuations in flows arriving
generally required to bear such cost under its contract.
at the treatment plant and therefore reduce the costs incurred by the DBO contractor, especially where pumping is involved. Better regulation and
9.5 CRU OPEX efficiency challenge
monitoring of trade effluent discharge flows and loads will reduce overall
For the second Interim Revenue Control 2 (IRC2), the Commission for
biological loading of the treatment plant and the peak loads in the
Regulation of Utilities (CRU) excluded DBO costs from the ‘OPEX’
influent, thereby reducing aeration and sludge management costs.
efficiency challenge set for Irish Water. DBO contracts were considered
The WSOG is willing to engage with Irish Water to support the planning
already committed and the CRU considered that Irish Water had little
process for the RC4 period during 2023, and to work collaboratively to
scope within which to drive efficiencies. The CRU has included DBO costs
demonstrate required savings and efficiencies.
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The Water Services Operators Group is a subcommittee of the Civil Engineering and Contractors Association and a constituent body of the Construction Industry Federation.
CIF Headquarters Construction House Canal Road Dublin 6 Phone: 01-406 6000 Email: info@cif.ie CIF Cork Construction House 4 Eastgate Avenue Little Island Cork Phone: 021-435 1410 Email: cifcork@cif.ie CIF Galway Construction House 8 Montpellier Terrace The Crescent Galway Phone: 091-502 680 Email: cifgalway@cif.ie www.cif.ie @CIF_Ireland